The First Danish Gun Jumping Case
In December 2014 the Danish Competition Council (DCC) adopted a decision holding that KPMG Denmark and Ernst & Young (EY) pre-implemented their merger. This was due to the fact that KPMG Denmark and EY had agreed that KPMG Denmark was to terminate its membership agreement with the KPMG network on the day of signing the agreement to join EY and thus well before obtaining merger approval from the DCC. For an overview of the guidance on gun jumping see page 1176 of Alison Jones and Brenda Sufrin, EU Competition Law (5th edn OUP 2014).
As a starting point the Danish prohibition against pre-implementation— the equivalent of Article 7 (1) of Regulation No 139/2004 at EU-level— seems clear. The parties to a merger cannot implement the transaction before it has been approved. Nevertheless, this triggers the inevitable question which legal advisors continuously are asked by their clients— what constitutes implementation of the transaction?
Certain types of actions clearly fall foul of the prohibition against pre-implementation. However, in everyday commercial operations many other questions may arise that have not been subject to judicial review, as was the case before the DCC. Here, the central question was whether the merging parties’ agreement that one of the parties was to terminate a major cooperation agreement prior to merger approval constituted gun jumping.
In reaching its decision, the DCC referred to case law from the European Commission and EU courts, eg. Electrabel v Commission and Aer Lingus v Commission. However, the DCC placed particular emphasis on the points made by the European Commission in its press release IP/97/1062 of 1 December 1997 which involved a joint venture Bertelsmann/Kirch/Premiere. Accordingly, the DCC concluded that the agreement for KPMG Denmark to terminate its membership with the KPMG network was directly related to the merger with EY and in particular the termination was irreversible – in other words if the merger with EY was not approved KPMG Denmark would not be re-joining KPMG International.
The gun jumping decision did not have any effect on the merger itself which was approved. But the case reiterates the need for compliance efforts in the transactional process.
More detailed information on gun-jumping can be found in Chapter 21 Mergers (2) – EU law of Richard Wish and David Bailey, Competition Law (7th edn OUP 2012). The article on Nordic Competition blog about gun-jumping under EU Competition Law may also be of interest.
Read a sample Danish case report on OCL.
Image: By Petey21 (Own work) [Public domain], via Wikimedia Commons